Dividends are a great reason to own real estate investment trusts (REITs). For many, they're the main reason. That steady flow of quarterly (and in some cases, monthly) cash can help bolster retirement income or, for investors of any age, add a bit more profit to the portfolio than money that's sitting in cash, bonds, or certificates of deposit.
Dividends also add to a stock's stability in a lot of ways, helping to hold up the price in turbulent times, including in the inflation we're seeing now. Companies pay dividends from their income, and a steady, growing dividend points to a steady, growing operation.
That said, here are a pair of real estate investments with ultra-safe dividends that are yielding more than the 1.20% offered by the S&P 500.
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Alexandria Real Estate Equities
Alexandria Real Estate Equities (ARE -0.27%) develops, owns, and operates laboratory and office space in several major R&D markets. It has more than 700 clients in life sciences and technology pursuits, including COVID-19 vaccine makers Pfizer and Moderna and many other developers of innovative medicines and other therapies that are extending life for millions around the world.
That's good business and has been for the company's 27 years in business. Alexandria stock now yields a fairly modest 2.2%,but that's at a share price that's risen about 24% in the past year. The REIT has raised the dividend for 12 straight years and at an annualized $4.60 a share equals a payout ratio of 55% based on the coming year's estimated cash flow. That's very safe territory.
Duke Realty
Duke Realty (DRE) bills itself as the largest domestic-only logistics REIT. The company went public in 1993 and it buys, develops, and manages properties in key supply chain centers in 19 markets across the country.
The company's warehouse and distribution facilities were 96% occupied by paying tenants in the third quarter. Rent growth helped drive funds from operations (FFO) per share -- a key metric for REITs -- up 15%, while same-property net operating income rose 3.8% from the year-ago quarter. It also has a heavily blue-chip client list. Transportation companies such as FedEx and UPS comprise 22% of the company's business, while its two largest individual tenants are Amazon and Home Depot.
Duke stock currently yields about 1.9%, right at the average of 1.9% for the 13 stocks that Nareit classifies as industrial REITs. And that's with a share price that has risen about 52% in the past year. The dividend has been raised for seven straight years and at an annualized $1.12 per share equals a payout ratio of a very modest 46.09% based on the coming year's estimated cash flow. Again, like Alexandria, that seems very safe.
Steady payouts underpin solid return over the long run
Neither of these stocks' yields compare to the 6% or so inflation that's currently eating into a dollar's purchasing power. But both have seen sharp increases in their stock prices, which drives down yield percentages. And both have been raising their dividends: Duke by 28% over the past three years and Alexandria by 20%.
Both REITs also are investing heavily in their own portfolios and have the kind of in-demand properties that support rising rents and revenues that together with modest payout ratios put them in a position to further boost their payouts.
Plus, combine the stock price and the dividends and you get total returns of about 57% in the past year for Duke Realty and 28% for Alexandria Real Estate Equities. Push that out to 10 years and you get a 555% total return for Duke Realty and 301% for Alexandria. Either of these would be a great choice for investors looking for a good pick among dividend stocks.
